BANKING ON THE SUBSCRIPTION ECONOMY: CONSUMER DEMANDS DRIVE THE SHIFT TO SERVICES FROM THEIR BANKS

Over half of consumers open to paying a bank a subscription fee for additional personalised services

Zuora®, the leading cloud-based subscription management platform provider, today unveiled research about a striking shift in consumer sentiment towards banking services. Nearly half (44%) of consumers would consider switching to banks on a subscription basis in return for personalised service bundles. This is significant in that over one-third (35%) of all UK consumers have never switched their bank. A standardised package isn’t enough to entice change, instead they want tailored offers and 60% of consumers will allow analysis of their purchasing data to get this.

The UK-wide study of 1,000 consumers, conducted by CitizenMe with Zuora, looked into what people want from their bank. The report found that UK consumers, who are notorious for never switching banks despite offers, showed over half (52%) of respondents would be enticed to switch banks if their subscription included an entertainment bundle. This was followed by smart phone insurance (33%) and utility services (31%).

The report found that there is a clear appetite for subscription services amongst consumers. Results showed 70% subscribed to entertainment (video and music) services, followed by insurance (52%) and grocery services (29%). Now the demand is on for a shift to subscription banking.

Consumers are looking for more than just financial incentives from their banks, rather they want personalised services that add value to their lives beyond a transactional level. The survey found that consumers want tailored over the top services based on their spending habits, with the majority (68%) open to paying a recurring fee to access these additional personalised services.

“Just like Netflix created new ways to consume television, the time is now for the financial services industry to shift to a subscription-based model. As younger fintech companies continue to disrupt the financial services industry banks need to re-establish their roles as trusted financial advisors. It’s clear the tides are turning and the survey results are evidence that banks will have to do more to earn loyalty now,” said Zuora Managing Director for EMEA, John Phillips.

Additional report findings include:

Nearly 6 in 10 consumers would be willing to share their transaction details in return for services that bundled their subscription payments and regular outgoings

A quarter of respondents (26%) would be willing to pay £5-10 per month for their bank account if it included these services

“The interest from respondents in additional services shows the opportunity for these banks to invest in subscription services to secure recurring revenue stream, which serve not only to retain existing customers but also draw in those willing to switch. In return for loyalty, customers expect more value added services that are delivered in a personalised way, and the research shows they’re willing to pay for it,” said Phillips.

Earlier this year Zuora launched its Subscription Economy Index report, which shows that an average subscription-based company increased its revenue by 321% compared to 2012. Importantly for the banking industry, this growth was driven by subscriber acquisition over average revenue by account

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DATA-DRIVEN BUSINESS OPERATIONS ARE A MULTI-YEAR PLAN FOR TWO-THIRDS OF FINANCE PROFESSIONALS

Data-driven business operations are a multi-year plan for two-thirds of finance professionals (66%). Only 7% think their own organisation is already data-driven, while 14% think they will achieve this within a year, with 43% expecting to become data-driven within two to three years. However, almost a quarter of organisations (24%) see this as taking more than four years, according to the latest findings from Onguard’s annual FinTech Barometer.

Combining and integrating data

Companies that want to become data-driven face limitations. The FinTech Barometer has identified the biggest challenge as being combining data from a variety of internal and external sources (40%). This combining of data is key, as it can be used to make predictions, in terms of credit scoring, payment behaviour and cash flow, for example, and to guide companies as to how best to respond to them. Although organisations have sufficient data, by not being able to combine it, they are not currently gaining optimum value from it. In addition, 31% lack the right technology to make data optimally available within their organisations. Therefore, integrating systems, such as a CRM system, as well as external data sources and the credit management system, likely proves to be a difficult task in practice.

Developing skills and expertise

A further challenge to organisations becoming data-driven is the lack of expertise in data processes and analysis (36%). The role of the finance professional is evolving in response to the growing demand within the financial world for different skills. According to the finance professionals, organisations most need analytical ability (59%), communication skills (37%) and programming skills (36%) in order to become data-driven. In addition, the knowledge and skills traditionally associated with finance professionals also remain crucial to interpret figures. Therefore, training current staff and recruiting new talent to specialise in the field of data analysis will help organisations gain the wealth of skills and experience needed to become data-driven.

Marieke Saeij, CEO, Onguard said: “Data-driven finance departments are the future. Data-driven organisations make better decisions, get ahead of competitors and have more satisfied customers. Based on insights gained from data, customer interactions can be personalised and there is room for innovation. Furthermore, becoming data-driven will increase efficiency and provide the insight needed to lower the Days Sales Outstanding (DSO) and improve the cash flow.”

86% of global banks surveyed are looking to use open APIs to enable Open Banking capabilities in the next 12 months

Banks believe regulators are stifling innovation: almost half (48%) believe ‘regulation is too tight’ and that there is ‘not enough government or industry support to foster innovation’

Finastra research reveals that 86% of global banks are looking to use open APIs to enable Open Banking capabilities in the next 12 months. In addition, 30% of banks surveyed believe Open Banking is already making a tangible impact in delivering improved overall customer experience. This is against a backdrop where regulation is perceived to be tighter than a year ago and close to half (48%) of those audited believe that regulators are holding back innovation.

The research, which was conducted prior to the Coronavirus outbreak amongst 774 financial institutions and banks across the US, UK, Singapore, France, Germany, Hong Kong and UAE1, shows a maturity of API adoption and calls for the harmonization of regulations between geographies.

Key findings include:

Open banking is on the up in 2020 compared to 20192: The percentage of financial institutions looking to leverage open APIs has substantially increased in the US (+23%) and UK (+17%), while Singapore (+1%), France (-1%) and Germany (-4%) are relatively stagnant since our research in 2019.

Improvements in the overall customer experience accelerate API adoption: the US (45%), Hong Kong (42%) and France (36%) are leading the way in harvesting this benefit of Open APIs (UAE: 32%; Germany: 20%; Singapore: 20%; UK: 19%). Overall, 41% of global banks say that they are ‘still in the early stages of adoption’, so it’s difficult to measure the impact of Open Banking on their business so far.

Regulation is perceived to be tighter than a year ago and industry or government support is required to foster innovation: Almost half of those audited believe that regulations are holding back innovation. 48% state that ‘regulation is too tight’ – 10% more than 2019 – and the same percentage (48%) believe there is ‘not enough government or industry support to foster innovation’, particularly so in Hong Kong (62%), France (50%) and Singapore (49%), compared to 38% in the UK.

A call for harmonization: 83% of financial institutions and banks agree that regulations regarding fintech innovation should be harmonized across different geographies.

Cost of fintech research and development is of concern in some regions: Cost of R&D in the US, UAE and APAC regions is highlighted, more so than in the UK. (USA: 55%; Hong Kong: 55%; Singapore: 51%; UAE: 46%; France: 43%; Germany: 34%; UK: 33%).

Simon Paris, CEO at Finastra said, “It’s encouraging to see Open Banking maturing on a global scale, but it’s still seen by many to be in its teenage years, with scope for creating even greater opportunities. We believe it will be the first step towards Open Finance which will see the next wave of innovation in financial services being created through collaboration on open platforms, like FusionFabric.cloud, using open APIs and open software solutions.

“Currently banks and technology vendors are rightly focused on business continuity and keeping their workforces safe. We’ve also seen many of these firms moving with amazing pace to bring innovative solutions to market, with the help of technology, to support customers in this new environment. As we come through this situation together, we must endeavor to emerge stronger, and it will be interesting to see how Open Banking and collaboration accelerate when this outbreak ends.”